How Is Interest Calculated on a Loan Against FD?

Have you ever needed urgent funds but did not want to break your fixed deposit? A loan against FD can be a smart way to unlock liquidity without losing your hard-earned savings. Since your deposit acts as collateral, the loan comes with low interest rates and flexible repayment options. However, understanding how interest is calculated on loan against FD is crucial to ensure you borrow wisely and repay affordably.

Explore easy and affordable funding through a loan against fixed deposit and get quick access to liquidity without breaking your FD.

A loan against FD allows you to borrow funds by pledging your fixed deposit as security. Instead of prematurely withdrawing your FD, you can use it as collateral to get an instant loan, usually up to 75% of the deposit value. The FD continues to earn interest, and you only pay interest on the borrowed amount. Here is how it works:

• You approach the same financial institution holding your FD.
• The lender verifies your deposit and sanctions a loan amount based on its value.
• The FD remains pledged until you repay the loan in full.

The advantage is simple, you get liquidity without disturbing your investment, and since the risk is minimal for the lender, the interest rate remains low.

The interest calculation method for loan against FD depends on the FD’s rate of return and the lender’s margin. Usually, lenders charge an additional percentage of 2% over the underlying deposit FD rate.  Here is how it is calculated:

1. Identify your FD rate: Let’s assume your FD earns 7% per annum.
2. Interest type: Most loans against FD charge simple interest, not compound interest, making repayment straightforward.

Example: If you have a Rs. 10 lakh FD at 7% p.a. rate of interest and take a loan of Rs. 8 lakh at a 1.5% spread: 

• Loan interest rate = 7% + 1.5% = 8.5% p.a. 
• Annual interest payable = Rs. 8,00,000 × 8.5% = Rs. 68,000. 

The section first says 'lenders charge an additional percentage of 2% over the underlying deposit FD rate', then the worked example uses a 1.5% spread (7% + 1.5% = 8.5%). If the standard Bajaj Finance spread is 2%, the worked example should use 2%: Rs. 10 lakh FD at 7% + 2% = 9% p.a. = Rs. 8,00,000 × 9% = Rs. 72,000 annual interest. Using 1.5% in the example while quoting 2% in the text creates a contradiction that confuses users.

Know your borrowing cost before you apply for a loan against fixed deposit and plan repayments smartly. For current rates, charges, and fee structure, visit the loan against fixed deposit interest rates and fees page for a complete picture.

The loan rate is slightly higher than your FD rate since it includes the lender’s margin. This difference ensures lenders cover administrative costs and risk, even though the loan is secured.

Key takeaway

The interest calculation method for loan against FD keeps your overall cost low compared to personal loans or credit cards. Since the FD acts as security, lenders are confident in offering attractive rates.

Enjoy low-cost borrowing with a loan against FD and use your savings to your advantage.

Besides the nominal interest rate, additional charges can influence your effective borrowing cost. Understanding these ensures you are not surprised by hidden expenses.

Term loan

Interest is charged on the full sanctioned loan amount from the date of disbursal. Repayment is typically via EMIs or bullet payment at maturity.

Overdraft against FD

Interest is charged only on the amount actually drawn from the OD account, only for the days it remains outstanding. No mandatory monthly EMI — you can deposit and withdraw freely within the sanctioned limit. Example (from Kuvera): Rs. 1 lakh OD limit; you withdraw Rs. 10,000 for 20 days, then repay; interest = Rs. 10,000 × 8% × 20/365 = Rs. 43.84 only.

Interest and charges vary based on how you use and manage the loan. Here’s how they typically function:

• Simple interest basis: You pay interest on the outstanding principal, not the full FD value.
• Monthly or quarterly billing: There is bullet repayment in LAFD. Also, in case of non-repayment, the amount gets adjusted against the deposit value.
• No impact on FD interest: Your FD continues to earn its agreed rate, unaffected by the loan.
• Automatic adjustment on maturity: If the FD matures before the loan is repaid, proceeds may be adjusted against dues.
• Prepayment flexibility: You can repay early to save on interest, depending on the lender’s policy.

These mechanics make loan against FD a predictable and low-risk option for short-term liquidity.

The loan interest rate is usually around 2% higher than the interest rate on your fixed deposit, though this may vary based on the lender’s policy and loan tenure. Since it’s a secured loan, the borrowing cost remains relatively affordable.

A loan against fixed deposit is one of the simplest, most secure, and most cost-effective borrowing options available. Understanding the interest calculation method for loan against FD helps you estimate your true cost, manage repayments efficiently, and avoid unnecessary penalties. With minimal paperwork, flexible tenure, and continued FD interest earnings, this loan gives you the liquidity you need, without compromising your savings.
 

Apply for a loan against fixed deposit today and access funds instantly while your savings continue to grow.